Marijuana Banking Business

Banks weed through the high risks and profits of the marijuana banking business.

Banks just say no, while the rest of us say yes. The federal government oversees the banking industry, and the Feds don’t smoke weed (in public, at least). It is apparently safer to let state legal businesses like dispensaries walk around with bags of cash than letting them deposit it in there local Citibank. Yet another hypocritical moral dilemma in the good ol' USA. Unfortunately m it follows the same backwards ideals that you can join the military at 18, put your life at risk, but not being allowed to buy a drink until 21. Same goes for federal laws that restrict the sale of Adult magazines on military bases, but are readily available in the local mall at the Barnes & Noble bookstore. Hypocrisy in our laws is not a new concept, but that doesn't make it any less detrimental.

Imagine being forced to carry around all of the money your business ever made, only in cash. You would think it's not that different than the 18th century economy, but even Opium dealers regularly made deposits in US banks back then. This is the reality for many who own marijuana dispensaries around the United States. NBC News interviewed Jamie Perino, the CEO of Euflora dispensaries in Denver, Colorado, and found that she has to hire a security team every month to visit her 3 marijuana dispensaries and deliver the thousands of dollars in cash to the city, county, and state. The security companies popping up regularly are a modern day Brinks group. The reason why she cannot simply put her business’s money into an account is because banks still call this "drug money," despite dispensaries of any kind being legal in Colorado. "I can't bank my money," she told NBC News. "It's really frustrating. … When I go to pay my federal taxes, you get a 10 percent penalty for paying in cash, but we can't have a bank account. So it's just a big Catch-22." She’s not the only one experiencing this; there are thousands of dispensary owners around the country who can’t deposit their profits because banks refuse to allow them to. This is because banks are hesitant to take on the risks that come with accepting money earned from a drug that is still illegal for recreational use in a majority of the country.

High Risk

For the most part, banks have never wanted to work with marijuana dispensaries because they could be billed as money launderers. Yes, the federal government spends time on this, even when there are some serious money laundering terrorist to be spending all those resources on. In 2014, HSBC was found guilty of taking part in money laundering and had to pay a $1.92 billion settlement. Obviously, banks want to avoid charges of any kind, so they stay clear of marijuana dispensaries. At the same time, these same banks put out research reports proclaiming the great investment opportunities the marijuana industry has to offer. Hypocrites, hypocrites, hypocrites. In fact, most investment banks have no problem servicing hedge funds with massive investments in the industry, or making markets in the stocks of marijuana companies, booking themselves welcome commissions.

Robert Rowe, Vice President and Associate Chief Counsel of the American Banker's Association, explained to NBC, "If a bank has a restaurant or a tavern that serves alcohol, they don't have to go in there and monitor to make sure the business isn't serving alcohol to minors. With a marijuana business, the obligation shifts back to the bank." The Treasury Department of Justice announced banking guidelines in 2014 to help ease the concerns of banks in that year. The guidelines included the fact that the federal government would not be targeting banks working with marijuana-related businesses that are legal and regulated on the state level. Unfortunately, not everyone was convinced, and the problem still stands.

According to The Huffington Post, banks that work with state-legal marijuana businesses must report their activities in a "suspicious activity report,” or SAR. These reports have three classifications including limited, priority, and termination. A limited filing means banks are working with marijuana-related businesses and those businesses are not believed to be in violation of federal guidance or their state marijuana laws. A priority filing means that banks believe a marijuana business that approached them may have been violating federal guidance or state law. It was reported that more than half of the 3,157 marijuana-related SARs filed were of the "limited" classification. However, the Financial Crimes Enforcement Network reveals that banks are filing nearly as many reports that terminate service with a weed business. It turns out there were 1,292 SAR filings under “termination,” meaning banks refused to provide banking services to marijuana-related businesses they felt may have been violating federal and state laws even if they were completely legal. Banks will do this in order to obey a federal anti-money laundering program.

The government has been taking steps to stop banks from overreacting this way. According to The Hill, the Marijuana Business Access to Banking Act—which was presented to the Senate in July 2015—would allow marijuana companies to store their money in banks. “Current federal laws are making marijuana businesses sitting ducks for violent crimes and perpetuating negative stereotypes,” said Sen. Ron Wyden. This is true; since these companies have to keep everything in cash, they are more likely to be robbed. “Without banks, many of our members are forced to operate entirely in cash, which puts their employees at risk for crime,” said Aaron Smith, executive director of the NationalCannabis Industry Association. “The legal marijuana industry is worth nearly $3 billion nationwide. We shouldn’t be forced to carry that around in duffel bags.”

A Band-Aid on a Bullet Wound

Although dispensaries might be able to bank in the near future, there must be a lot done to shake the stigma of marijuana. In December of 2014, a high school in Washington—a state were medical and recreational marijuana is legal— refused a $14,000 donation from a marijuana farmer because they believed it was “drug money.” Randy Williams, the man donating the money, is the owner of Firewood Farms. He held the first-ever bud auction in November that year and promised to donate the proceeds to a local school in need. He offered the money to a school in Prosser but Superintendent Ray Tolcacher refused, saying, “We’re not taking it; end of story.” Tolcacher told the Seattle Times that he had caught more students with marijuana since the herb was legalized in 2012 and that taking the “drug money” was sending the wrong message to youths.

In the end, the profit outweighs the risk. It has been over two years since Colorado legalized medical and recreation marijuana and there is sure to be another annual report on the economy since the legalization soon. At the one year mark, financial news outlets reported that Colorado’s tightly regulated medical marijuana industry has become a retail industry. This is because the Colorado Department of Revenue was able to refine tax and regulate the retail market in a way that positively influenced the economy in the state. In October of 2014, during its first year of legalization, Colorado brought in more than $53 million in marijuana taxes. Meanwhile, Colorado is ranked as one of the fastest growing economies today.

Unfortunately there isn’t an exact number on how large the legal marijuana business community is, but deputy director of the National Cannabis Industry Association, Taylor West, suggests there might be around 2,000 to 3,000 dispensaries nationwide. However, this number doesn’t include cultivators, edibles manufacturers, and ancillary businesses that are also part of the industry. While banks in states that have not legalized marijuana cannot work with dispensaries, it is better for the economy if banks in states that have legalized the herb work with legal dispensaries. "We’re happy for anything that allows even a few more cannabis businesses to get bank accounts," West told the Huffington Post. "But this is a crisis that demands a sustainable, industry-wide solution, and the guidance just hasn’t been more than a Band Aid."